Covid 19: National Economic Recovery Plan (PENJANA) - Tax-Related Measures

The momentum of economic growth in Malaysia has weakened considerably due to the outbreak of the COVID-19 pandemic. In this connection, the Government has earlier on introduced three Economic Stimulus Packages with a view to strengthening the economy.
 
In its continuing effort to save Malaysia from the pandemic-induced economic fallout, the Government has, on 5 June 2020, unveiled Pelan Jana Semula Ekonomi Negara or the National Economic Recovery Plan (PENJANA)[1] which contains 40 initiatives strategically designed to propel the nation’s economic growth. Our overview of PENJANA is available here.
 
We summarise here the tax-related measures contained in PENJANA.
 
  1. For Businesses
  • From 1 July 2020 onwards, employers who implement Flexible Work Arrangements (FWAs) or undertake enhancement of their existing FWAs will enjoy further tax deduction.
  • Expenses incurred by businesses for preventing COVID-19 such as purchasing personal protective equipment (PPE) and carrying out COVID-19 tests will be tax deductible and eligible for capital allowance.
  • There will be a 50% remission of penalties for late payments of Sales and Services Tax (due and payable from 1 July 2020 to 30 September 2020) by companies.
  • Special tax deduction for renovation and refurbishment of business premises, and Accelerated Capital Allowance on eligible capital expenses including ICT equipment is extended to 31 December 2021.
  • Special tax deduction for landlords of business premises that offer rental reduction of at least 30% to Small and Medium-sized Enterprises (SMEs) is extended to 30 September 2020.
  1. For New Businesses
  • Newly established SMEs will be given an income tax rebate up to RM20,000 per year for first three years of assessment (YAs) between 1 July 2020 and 31 December 2021.
  • SMEs will enjoy stamp duty exemption on any instruments executed for Mergers and Acquisitions for period between 1 July 2020 and 30 June 2021.
  1. For Businesses Relocating to Malaysia
  • New investors with capital investment between RM300 – RM500 million that invest in the manufacturing sector will enjoy 0% tax rate for 10 years.
  • New investors with capital investment above RM500 million that invest in the manufacturing sector will enjoy 0% tax rate for 15 years.
  • Existing Malaysian companies with capital investment above RM300 million that relocate their facilities from abroad to Malaysia will enjoy 100% Investment Tax Allowance for 3 years.
  • Special Reinvestment Allowance will be given to manufacturing and selected agriculture activities from YA 2020 to YA 2021.
  1. For Employees/Individuals
  • From 1 July 2020 onwards, employees who receive a handphone, notebook and tablet from their employers will enjoy income tax exemption up to RM5,000.
  • Effective from 1 June 2020, individuals will enjoy a special income tax relief up to RM2,500 on the purchase of handphone, notebook and tablet.
  • To facilitate the transition to the new normal of working from home, the Government will support working parents by increasing the income tax relief for childcare services expenses from RM2,000 to RM3,000 for YAs 2020 and 2021.
  • The period for individuals’ income tax relief of up to RM1,000 for domestic tourism expenses is extended to 31 December 2021.
  1. For Real Property Sellers and Buyers of Residential Properties
  • The Home Ownership Campaign (HOC) will be reintroduced. Purchasers of residential properties priced between RM300,000 and RM2.5 million will enjoy stamp duty exemption on instruments of transfer and loan agreements. The exemption on instruments of transfer is only limited to the first RM1 million of the purchase price of the residential properties. Whereas, full exemption will be given to loan agreements. (“the Stamp Duty Exemption”). This Stamp Duty Exemption will apply to sales and purchase agreements signed between 1 June 2020 and 31 May 2021, subject to the condition that developers provide at least 10% discount on the properties.
  • The gain realised from disposing of residential properties between 1 June 2020 and 31 May 2021 is exempted from Real Property Gains Tax (RPGT). This exemption is limited to the disposal of three units of residential homes per individual.
  1. For Purchasers of Passenger Cars
  • From 15 June 2020 to 31 December 2020, purchasers of locally assembled cars will enjoy full sales tax exemption, whereas purchasers of imported cars will enjoy 50% sales tax exemption during the same period.
  1. For the Tourism Sector
  • Full tourism tax exemption will take effect from 1 July 2020 to 30 June 2021.
  • Service tax exemption for hotels is extended to 30 June 2021.
  • Period for deferment of tax instalment payments for the tourism industry is extended to 31 December 2020.
  1. For the Commodity Sector
  • 100% export duty exemption for crude palm oil, crude palm kernel oil and refined bleached deodorised palm kernel oil effective from 1 July 2020 to 31 December 2020.
Commentary
 
The PENJANA initiative is welcomed. It is hoped that the tax-related measures, together with the other economic initiatives in PENJANA, will go some way in driving the nation’s economic recovery.
 
That said, it is expected that the relevant authorities will issue further clarification on the details or conditions to qualify for such exemptions/ relief so that the administration of theses reliefs is effective and serve the purpose for which they were intended.
 
We point out some areas which may require further consideration and clarity:-
 
  1. The scope, criteria and definition should be made clear for the following:
  • deductions for FWAs
  • income tax rebate
  • SMEs
  • manufacturing sector and agriculture activities
  1. The claiming of tax deductions and/ or capital allowances in relation to Covid-19 expenses such as Covid-19 tests and PPE for the employees should not be specifically prescribed by the tax authority. Arguably, the usual principles should apply, that is, as long as the Covid-19 expenses incurred by the companies during the new normal are being incurred in the production of gross income and used for the purposes of a business, the companies should be able to claim such tax deduction and capital allowance.
  1. The exemptions of tourism tax and service tax for the tourism sector are for a fairly limited period. Perhaps such exemptions should be extended to post-pandemic and subsequent recovery periods to support and promote the tourism sector.
If you have any queries, please contact Preetha Pillai (psp@skrine.com), Desmond Liew (desmond.liew@skrine.com) or Dickson Chia Chung Ming (dickson.chia@skrine.com).
 

[1] A booklet issued by the Ministry of Finance that sets out the initiatives under the PENJANA package can be viewed here.